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Credit card borrowing tumbles

The amount of money borrowed on credit cards saw a sharp drop in July. Official figures from the Bank of England reveal net lending fell by £147m during the month, making it be biggest fall since August 2006.

With the turbulent economic situation showing little sign of abating, industry experts believe the figures suggest consumers are increasingly reluctant to spend and instead are choosing to pay off what is owed on their plastic.

The fall in spending on plastic coincides with lower than expected retail figures for early August despite hopes of a London 2012 Olympics inspired boost. A report by the Confederation of British Industry found that 31% of retailers suffered lower sales volumes during the first two weeks of August compared with a year ago.

The figures highlight the tough challenge faced by the banking industry and government to forge a rebound in economic activity following Britain’s slide back into recession.

With little consumer appetite for taking on new borrowing, there are fears that reducing inflation alone will not be enough to give consumers the confidence to splash the cash.

Samuel Tombs of Capital Economics remarked: “We think that weak money and credit growth is likely to act as a brake on the economy for some time to come.”

Judith McKenna, chairwoman of the CBI distributive trades panel and Asda chief operating officer, said: "Although this summer's events created a mood of celebration across the nation, these figures would suggest this positivity did not extend to the high street.”

Despite the bleak outlook there have been some positive signs. Visa, the only credit card accepted at the Olympics venues, reported that international tourists spent more than £450 million on their cards during the first week of the Olympic games, up by 8% on the same time last year.

Steve Perry, commercial director at Visa Europe, said: "It would appear that visitors are out celebrating the success of their athletes in some style, with restaurant spending up by almost a fifth and nightclub spending by almost a quarter on this time last year."